Business, commercial and non-profit entities or individuals issue invoices to customers for products or services sold. These invoices include an amount owed for such products and services, and most may include the quantities of those products and services and the stated or agreed upon prices or fares among other terms. Government entities also issue invoices for services, asset sales, tariffs, interest, taxes and penalties to individual and business taxpayers. Product and services may also include interest, loan principal and penalties. These business, commercial and government entities and/or individuals that issue invoices are herein collectively referred to as “sellers”.
Sellers routinely have a large amount of their assets in account receivables or unpaid invoices that these sellers have issued to customers for payment but have not been paid yet. Although the current batch of invoices may be paid within a reasonable amount of time—say 30-90 days—by the time these invoices are paid, new invoices would have been issued. This process and the times it takes customers to pay leave sellers with a reduced level of capital and free assets to conduct business.
In order to increase the level of available cash for business purposes (including mainly paying obligations to others), sellers will routinely discount their receivables (sales invoices), borrow money or utilize other financial methods, such as factoring, issuing short term notes or receivable financing. While these processes are available to businesses, related discounts, interest and transaction costs can significantly affect the cost of doing business, growth and profit margins for a business. Although these processes are not desired by businesses that are always interested in decreasing extraneous costs and penalties, currently there are no effective alternatives.
Many sellers discount their receivables in order to entice customers to pay early. Although this strategy is effective some of the time, it is quite costly to sellers (average of 2% per invoice). Some sellers can be qualified to finance their sales invoices at interest rates that correspond to creditworthiness and ranging on average from 1% below to 11% above prime rate. Some sellers factor (sell) their sales invoices at an average cost of 1% to 4% of the sales invoice credit value depending on terms and receive about 70% to 90% of the credit value until the customer pays.
Some sellers incorporate the cost of interest, transaction costs and penalties in their invoices and pass it on to their customers, which increase the liability and costs to these customers and reduce the seller's price competitiveness. Some sellers write these additional costs off without passing them along to customers, in order to maintain good working relationships at the cost of lower profit margins. As used herein, the term “customer” means any person or entity that receives an invoice for payment. As used herein, the term “payment” means any exchange of money to clear an amount of an invoice debit value and obligations. This process is shown in Prior Art FIG. 1, which shows conventional methods of invoice payment and financing.
In Prior Art FIG. 1, a process 100 is shown between a seller 110 and a customer 120. The seller 110 sells goods or services 130 and the customer 120 makes payments within 30 to 90 days 140. After 30 to 90 days, the cycle 150 repeats between the seller 110 and its customers 120. An average of 8% to 15% of a seller's 110 annual revenues is locked in unpaid sales invoices 160. In order to get cash, the seller 110 can discount the sales invoice 170 to entice the customer 120 to pay early; sell invoices to a factoring firm, or borrow money from a bank or by issuing debt instruments in the capital markets.
As a reference point for the subject matter disclosed herein, the factoring market in the United States exceeded $127 billion in outstanding factored receivables (sales invoices) in 2006. The asset-based lending market exceeds $480 billion and around $2 trillion in outstanding commercial papers in the United States. These numbers are growing, coupled with recent financial downturn in various sectors, means that additional invoices are left unpaid, financing options are increasingly limited and so is availability of factoring capital.
U.S. Pat. No. 6,910,021 issued to Brown et al. in 2005 describes a financial management system that supports offsetting programs, but does not actually complete the offsetting process. The United States Treasury has set up a trial offsetting system whereby refunds that are owed to a taxpayer are offset by any past due judgments or family/child support payments owed by that same taxpayer. There do not appear to be any current procedures methods or systems though for matching up sellers and customers to offset their invoice obligations without making a payment drawn from a bank, credit or investment account (with extremely limited and inefficient exceptions of bartering or payment forgiveness). There also do not appear to be any current procedures, methods or systems for resolving invoice obligations of multiple sellers multiple customers and multiple invoices at the same time or in an intelligent manner to quickly offset invoices for as many related parties as possible.
Based on the current process of issuing and paying invoices whether on paper or electronically, between sellers and customers, it would be economically helpful and desirable to produce a new system and related methods for matching a seller's invoices and offsetting its purchase invoices with its sales invoices by linking its invoices with those of its customers and its sellers (vendors) and their customers and sellers in order to offset invoice debit and credit values, to reduce payment times, to reduce the number of outstanding invoices, to reduce invoice discount costs, penalties, interest, and the need to borrow or finance assets, to increase buying power or a combination thereof.